Untermyer v. Anderson

1928-04-09

Headline: Court invalidates 1924 gift tax as applied to genuine gifts made and finished before the law took effect, reversing lower courts and protecting people who gave property before June 2, 1924.

Holding: The Court held that the 1924 gift tax applies to gifts made during the calendar year 1924 but is arbitrary and invalid under the Fifth Amendment as applied to bona fide gifts completed before June 2, 1924.

Real World Impact:

Protects bona fide gifts completed before June 2, 1924 from application of the 1924 gift tax.
Reverses lower-court rulings that upheld the tax on pre-enactment completed gifts.
Limits retroactive application of tax laws in similar completed-gift situations.

Topics: gift tax, retroactive tax rules, constitutional due process, estate and gift rules

Summary

Background

The estate of Isaac Untermyer sued the federal tax collector to get back a tax charged under the Revenue Act of June 2, 1924 for a gift he made on May 23, 1924. After Untermyer died, his executors continued the suit on agreed facts. Lower courts upheld the tax, and the Supreme Court considered this case alongside a related earlier decision about gifts made in January 1924.

Reasoning

The Court read the 1924 law as applying to all gifts made during the calendar year 1924. Even so, a majority concluded that applying the gift tax to bona fide gifts that were not made in anticipation of death and were fully completed before June 2, 1924 was arbitrary and violated the Fifth Amendment’s protection against taking property without fair process. The majority stressed taxpayers should be able to know when a tax applies and should not be required to guess the fate of pending bills; treating the narrow difference in timing as lawful would create serious practical and interpretive problems.

Real world impact

The decision reverses the lower-court judgment and protects individuals who made genuine, completed gifts before June 2, 1924 from this tax as applied here. It limits the retroactive reach of the 1924 statute in comparable situations and emphasizes that retroactive taxation across a bill’s final passage can be unreasonable when taxpayers could not foresee liability. The ruling shapes how similar retroactive tax measures will be judged going forward.

Dissents or concurrances

Justice Holmes (joined by Justices Brandeis and Stone) dissented, arguing long practice supports retroactive tax measures and that Congress may lawfully make taxes apply to prior periods to prevent evasion.